Blacks Leisure: 89 store closures and a CVA couldn't outrun £190m of lease commitments

Blacks Leisure, the Northampton outdoor group behind Blacks, Millets and Freespirit, spent September 2009 fighting for survival with its lender, Lloyds Banking Group. Its fix was surgery: 89 mostly loss-making Millets and Blacks stores to close with up to 500 jobs going, head office cut by a fifth, and a company voluntary arrangement to force rent cuts from landlords. Its 11 O'Neill stores, held through Sandcity, went into administration outright.

Two years of restructuring did not shrink the estate fast enough. At the end of February 2011 the group still ran 306 stores employing 3,600 people, with £36m borrowed from Bank of Scotland but forward lease commitments of more than £190m — over five times the bank debt. Sports Direct spent 2011 building a 22.5% stake from under 15% in May, then pulled out of takeover talks in December. On 23 December the board told the market it had no offer for the shares and that ordinary shareholders were 'most unlikely' to receive any value.

On 9 January 2012 the company entered administration and was immediately sold: JD Sports paid £20m in cash for the inventories, fixtures and intellectual property, beating nine other bidders including Dragon's Den star Peter Jones and Sports Direct itself. Administrator Richard Fleming of KPMG said all the shops would keep trading while JD, which inherited an operating loss of £2.5m for the year to March 2011, reviewed the future of every one of the 290 stores it had bought.

306 stores and 3,600 staff went through a pre-pack; ordinary shares worthless; JD Sports paid £20m for assets; Sports Direct's 22.5% stake wiped out

Retail-park expansion left forward lease commitments of £190m against £36m of bank debt, so every bad store kept costing rent for years after it stopped earning.

The 2009 CVA and 89 closures bought the bank's patience but left the estate too big; the group still ran 306 stores two years later.

Sports Direct's stake-building to 22.5% chilled the takeover market instead of enabling a bid; when talks collapsed, the one natural buyer was left with worthless shares.

By December 2011 the board was engineering a pre-packaged administration 'on behalf of the bank' — the equity was already dead, and only the asset sale had value.

A CVA treats the symptom — loss-making stores — not the disease. When forward lease commitments dwarf bank debt, every weak shop keeps costing rent for years, and only a pre-pack can reset the book.

JD Sports funded the £20m deal from cash and existing facilities, retained a senior team under chief executive Julia Reynolds, and warned that job losses were inevitable as it reviewed the long-term future of all 290 acquired stores. Blacks and Millets survived as standalone fascias inside the JD group. The pre-pack left the failed company holding the lease book: landlords and unsecured creditors bore the cost of the commitments JD declined to inherit, while the trading business carried on debt-free.